Gen Z business-formation activity is rising rapidly, even as the traditional path from launching a company to hiring a team appears to be changing. The result is a new kind of startup: one that can build a brand, test a product, serve customers and generate revenue before placing a single employee on payroll.
According to Bank of America Institute, its proxy for Gen Z business applications increased approximately 66% year over year in June 2026. The figure is based on a rolling 12-month total and comes from customer payments associated with opening limited-liability companies and completing other business-formation activities. It is not a complete count of every new Gen Z business, but it signals that younger Americans are entering entrepreneurship at a much faster rate than older generations.
That does not mean Gen Z now dominates business ownership. Bank of America’s data still shows nearly four Gen X founders for every Gen Z founder, while Millennials also substantially outnumber their younger counterparts. Gen Z leads the recent growth rate, not the total number of founders.
More applications do not necessarily mean more employers
The national business-formation picture is also striking.
The U.S. Census Bureau recorded 531,423 seasonally adjusted business applications in June, an increase of 1.1% from May. These applications are based on filings for Employer Identification Numbers, or EINs. An application can represent serious plans to establish a company, but it does not necessarily mean the business has begun operating, earned revenue or hired workers.
That distinction matters.
Of June’s total applications, 149,714 were classified as “high-propensity,” meaning they had characteristics historically associated with becoming employer businesses. Only 35,695 included a planned date for paying wages. The Census Bureau projects that 29,741 businesses from June’s group of applications will develop payroll tax liabilities within four quarters.
It would be a mistake to conclude that the remaining applicants will never hire. Some founders may add employees later. Others may initially rely on freelancers, agencies or contractors. Still others may deliberately remain solo.
What the figures suggest is that the gap between starting a business and establishing payroll may be widening.
Artificial intelligence could be one reason.
AI is extending the pre-payroll stage
A founder can now use AI and low-cost software for tasks that once required several people. These tools can draft marketing materials, summarize research, answer routine customer questions, organize sales leads and assist with bookkeeping, design or coding.
Scheduling, invoicing, email campaigns, online payments and inventory tracking can also be automated.
These technologies do not remove every need for human talent, but they can postpone a company’s first hire. In an earlier startup cycle, a founder might have quickly employed an administrative assistant, junior marketer or entry-level developer. Today, that founder may use a collection of software subscriptions while testing whether customers are willing to pay.
Bank of America’s research identifies a growing divergence between overall business applications and applications that include plans to pay wages. The difference is especially visible in information and other white-collar industries, where digital work is relatively easy to support with automation. The researchers suggest that AI may be helping some founders adopt leaner operating models, although the data do not prove that AI is the sole cause.
Evidence from established businesses supports part of that argument.
In the Federal Reserve Banks’ 2025 Small Business Credit Survey, 46% of small employer firms said their business or employees were already using AI. Another 15% planned to begin using it during the following 12 months.
Among firms using AI, 71% reported increased productivity, 39% reported improved product or service quality and 31% reported higher sales. However, the vast majority reported no change in labor costs. For many businesses, AI appears to be helping employees produce more rather than simply replacing them.
Small-business employment is under pressure—but be careful with the conclusion
The QuickBooks Small Business Index estimated that U.S. businesses with one to nine employees lost 14,400 jobs in July. That represented a monthly decline of 0.11%, leaving estimated employment at approximately 12.79 million.
This is a useful sign of pressure on very small employers, but it should not be directly attributed to Gen Z or AI.
The index covers existing small businesses, not only recently launched companies. It does not identify the ages of their owners, and it cannot explain why employment declined. Economic uncertainty, changing customer demand, rising operating expenses and difficulty obtaining financing may all affect hiring decisions.
The more defensible conclusion is not that employees are disappearing. It is that hiring may be becoming a later, more deliberate step in the startup journey.
Two different startup models are emerging
The effect will vary considerably by industry.
A consultant, content studio, online retailer or software company may be able to reach meaningful revenue with a founder, several digital tools and a small network of contractors. When the company eventually hires, it may recruit a specialist who strengthens its competitive advantage rather than a generalist who performs repetitive administrative work.
Physical and relationship-based businesses will follow a different path. Restaurants, construction companies, beauty businesses, healthcare services and local retailers still require people to prepare food, serve customers, perform skilled work and operate physical locations.
Their founders may use AI behind the scenes for marketing, scheduling and administration, but technology cannot fully deliver the service.
This creates two emerging models: the AI-native lean company and the AI-assisted employer. Both can be productive and profitable, but only one may build a large payroll quickly.
The goal should not be to avoid hiring
For young entrepreneurs, the lesson is not to eliminate employees. It is to hire when a role has become economically and strategically necessary.
Before adding an employee, a founder should determine whether the work is recurring, whether it affects revenue or customer trust, whether technology can perform it reliably and whether the company can support the complete cost of employment during slower months.
Founders must also recognize the limits of remaining lean. A one-person company becomes fragile when every decision, customer relationship and operational process depends on one exhausted individual. Contractors offer flexibility but can create coordination problems. AI saves time, but it still requires oversight and can produce inaccurate or generic work.
Gen Z’s entrepreneurial surge may therefore result in fewer early hires, not a future without employees.
The defining question for the next generation of startups will not be, “Can this business operate without anyone else?”
It will be: “Which work should technology handle, and which work becomes more valuable when a human does it?”
The startups that answer that question well may remain small for longer. They may also become much stronger before they grow.
